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HomeMy WebLinkAboutMinutes - City Council - 2007-05-18 - Special Meeting 110 City Council, Special Meeting Council Chambers 777 Cypress Avenue Redding, California May 18,2007,1:30 p.m. The meeting was called to order by Mayor Dickerson with the following Council Members present: Bosetti, Jones, Murray and Stegall. Also present were City Manager Starman, Assistant City Manager Bachman, City Attorney Duvernay, Finance Officer Strong, City Clerk Strohmayer and Assistant City Clerk Sherman. I GOVERNMENT ACCOUNTING STANDARDS BOARD - Statement 45 (P-IOO-150) City Manager Starman explained that the Government Accounting Standards Board (GASB) adopted Statement 45 in 2004 (commonly referred to as GASB 45), which requires government agencies to calculate and disclose costs associated with certain non-pension- related retiree benefits such as health care. He said that Redding, classified under GASB 45 as a large City, will be required to comply with the new requirement in Fiscal Year 2007-08. He explained that individuals who retire directly from the City, are eligible to continue participation in the City's group health insurance program by paying 50% of the monthly premium with the City paying the remainder. Historically, he said the City has funded retiree and active employee insurance on a cash basis and GASB 45 will require that the City determine, biennially, through an actuarial study, the total accrued liability of health benefits promised to existing retirees and current employees when they retire. It will also require that the City calculate the annual contribution that would be required in order to amortize that liability over a period of not longer than 30 years. Mr. Starman emphasized that it does not require that the City actually make the contribution each year, only that it be recorded in the City's financial statements. He related that in preparation to better understand and comply with this mandate, the City retained a consultant, Bartel & Associates, LLC, to provide the actuarial study component of this process. I Mr. Starman said there are options as to how to address GASB 45 impacts which range from simple compliance with required disclosures, to paying off the entire accrued liability in order to eliminate the debt. The more conservative approach, he said will be to meet the reporting requirements and begin developing a long-term plan to reduce the accrued liability which will continue to grow if not paid down systematically. He added that aside from good business practices to payoff commitments when they are made, fina~ciiil markets 4ave indicated that they will scrutinize an agency's accrued liability and detemiine its financial viability before assigning a favorable bond rating. '" I City Manager Starman explained that the purpose of to day's meeting is to provide Council with information and also address questions and concerns it may have. Staffwill then ask for direction in bringing back a definite plan, at a later date, as to how to address GASB 45 requirements. He added that the Public Employee Retirement System (PERS) and other private agencies may be offering a trust service to pre-fund contributions at some point, but it is early in the process and none have solidified a plan or commitment. John Bartel of Bartel & Associates, LLC explained that GASB is an organization that sets the standards and requirements for governmental finance throughout the country and the City has long complied with those standards. Mr. Bartel emphasized that nothing within GASB 45 requires any jurisdiction to pay more than that which is being paid, but it does require that the difference between what is paid and what the actuarial study reveals should be paid must be disclosed. Mr. Bartel said that this mandate strongly encourages jurisdictions to pre-fund this liability and he believed many will do so. I Mr. Bartel provided a detailed overview of the Retiree Healthcare Plan, GASB 45 Actuarial Valuation Preliminary Results prepared by his firm, dated May 18, 2007, incorporated herein by reference. He provided slides covering Benefit, Claims, and Data Summaries, Actuarial Assumptions, Definitions, Examples of Active Employees versus Retirees, Actuarial' Obligations, Annual Required Contributions (ARC) and the results of the study as they relate to actuarial obligations of GASB 45. 5/18/2007 111 Council Member Murray questioned the number of retirees participating in the City's insurance program, noting that the number has a significant impact on costs.. He observed that a retiree currently contributes approximately $535 per month to participate in the City's insurance program, however, there are private insurance companies that offer comparable coverage for less. He suggested that the City implement insurance counseling for employees as they retire so that they are aware of what is available and for how much. Mr. Murray observed that disclosing this information could benefit both the retiree with less expensive insurance and, by reducing the number of retirees participating in the City's program, save the City money. I City Manager Starman explained that the City provides a detailed orientation to employees transitioning to retirement, and he pointed out that if a retiree opts out of the City's insurance program 'as they leave service, they are prohibited from joining at a later date. Personnel Director Johnson explained that the City does not compare the City's insurance program to private sector programs, and confirmed that staff provides detailed insurance pla~ information to employees as they leave City service. City Attorney Duvernay cautioned against unduly influencing individuals with regard to insurance choices at retirement. Council Member Jones believed it burdensome to task City staff with review of a seemingly endless supply of insurance companies and programs available in order to provide that information to retirees. City Manager Starman related that staff will explore the issue and return to City Council with additional information. I In response to Council Member Murray, Mr. Starman said that the ability to fund retirement health care costs represents a small portion of the City's assets, and a favorable bond rating is not based solely on an agency's ability to satisfy GASB 45. However, he cautioned that doing nothing carries the potential of being hit with a significant shortfall later on. Mr. Bartel commented that there are options, but a policy decision must be made to continue with the status-quo, or start moving money into an irrevocable trust, or take one-time money and place it into a trust. Council Member Murray said that while Redding is financially conservative, it is difficult to justify setting aside $90 million in a trust fund to satisfy GASB 45 when that money could be used for needed services and projects. Mr. Bartel responded that other jurisdictions are not meeting total funding obligations immediately, but working toward that goal over time. They are setting aside a significant amount each year to meet the ARC and he confirmed that bond companies tend to favor those agencies (with an improved bond rating) that take an aggressive approach toward achieving the ARC in a short amount of time. I Council Member Murray observed that funding this mandate will significantly impact the City's General Fund, and that will have to be offset by increased rates in the City's Enterprise funds. Mr. Murray also noted that the scenarios presented by the consultant have political ramifications in that the current City Council may be reluctant to make decisions which could prove unpopular to their constituents at the next election, but this problem cannot be left to future Councils. Council Member Stegall acknowledged the merits of implementing an irrevocable trust, but questioned the fate of funds deposited in the trust should universal health care come into effect. Mr. Bartel responded that if, in the advent of universal health care, the City has no premiums to meet and no benefits to payout, then the money would revert back to the City. However, he added that if there are changes to the health care system wherein the City has a responsibility to fund a portion of a universal health care-type program, the money would not come back but fund the City's pro rata share. 5/18/2007 112 City Manager Starman supported exploring the possibility of approaching representatives from PERS to assist with the funding mechanism should that option become available. Council Member Bosetti requested that staff provide cost information in dollar amounts for all City benefits and suggested that employee benefits may have to be reduced. Mr. Starman said that staff can explore a design change in the City's employee benefit package, but pointed out that changes could only take place in the meet and confer process with the City's various labor unions. Willie Preston, Redding resident questioned the consultant's assumptions with regard to employee years of service. Mr. Bartel referenced Slide No. 14, covering Data Summary for Total Actives saying that the assumptions are illustrated in a simplistic example and not representative of the City's demographics. I It was the consensus of the City Council that staff prepare a definitive plan to address the implications of GASB 45 and report back to the City Council at a future meeting. There being no further business, at the hour of 3:36 p.m., Mayor Dickerson declared the meeting adjourned. APPROVED Lfid ~ Dick Dickerson, Mayor ATTEST: I ~~ City Clerk I . V; I 5/18/2007